FloodFlash is an insurance company that is working to make event-based insurance cover available to all, ensuring everyone is able to recover from catastrophe fast. Founded in 2017 by Ian Bartholomew and Adam Rimmer, they are currently pioneering the innovation of “parametric insurance”. This involves installing digital devices within premises that detect water levels paying claims just days or even just hours after the floodwaters hit, in huge contrast to the usual timescales of traditional insurance.
Here, Adam and Ian speak to The Fintech Times about how their company is revolutionising the insurance business.
What inspired you to create FloodFlash?
Adam Rimmer: The lightbulb moment came when Ian and I were working at RMS, the world’s largest risk-modelling firm, on a case in New York after the extensive flooding caused by Hurricane Sandy in 2012. Like millions of people around the world, the New York Metropolitan Transport Authority found it impossible to renew their cover after a catastrophic flood claim. We helped them develop “parametric” insurance to cover the risk. It’s an alternative type of cover where the claim is based on a measurable event rather than the damage caused by the event. In the case of the MTA, their cover would pay $200 million if water rose above a certain depth in the harbour, as it did during Sandy.
Parametric insurance policies like these are typically very expensive but advances in data and tech are starting to make it a possibility for more people. Ian and I started FloodFlash to bring parametric insurance to the mainstream and protect more people from catastrophic flooding, regardless of their budget.
How does it work?
AR: At the start of the process, we ask the client two questions. First, they select up to three trigger depths for the policy. Then we ask how much money they would need if flooding reached each trigger depth. The answer to those questions then forms the policy.
We attach our own IoT sensor to the client’s property. The sensor measures flood depths and sends the data to FloodFlash HQ via mobile networks. As soon as floodwater reaches the client’s trigger depth we validate the claim and pay the money they requested, usually within 48 hours.
How is it different to traditional insurance?
AR: There are a few key differences, but the biggest is the speed at which FloodFlash pays claims. Traditional flood insurance claims often take months.
Ian Bartholemew: We have clients whose previous claims took years to resolve.
AR: FloodFlash measures claims in hours, not months. Our fastest ever claim took just 9 hours and 44 minutes. The client had their full payout in the bank within 10 hours of their property flooding. That means they can start recovering straight away, and it removes the hassle, stress and time of chasing your insurer for months on end. Most importantly of all, a fast claim means the client’s business is far more likely to survive.
IB: There are a few other differences that are worth mentioning. The reason we can pay so fast is that we don’t use the loss adjustment process that people will be familiar with from traditional insurance. No-one visits the property to check the damage or haggle over the final claim amount. The client receives what they requested when setting out the policy so it’s much more transparent.
You can also use the payout on whatever costs that arise from the flood. Traditional insurance may stipulate that money must be spent on certain things. FloodFlash lets the client decide how to use the money. That way they can be flexible in their recovery.
What technology do you use?
AR: There are two sides to FloodFlash tech. The sensor that we mentioned earlier is essentially the FloodFlash claims department. It might not look like much but without it there’s no way we’d be able to pay our claims as fast as we do. It’s a highly accurate depth-measurement device with internet connectivity and fail-safes. It’s self-sustaining and storm-proof so it can weather almost anything.
The other half of FloodFlash tech is the cloud-based underwriting platform we use. That gives brokers and customers direct access to FloodFlash quotes. That means people can access parametric quotes easily, removing the need for the expensive cast of experts normally associated with the cat bonds that inspired us.
What is the benefit to customers and insurers?
AR: Traditional insurance offers pound-for-pound indemnity, the value that was lost exactly (allowing for insurance technicalities like excesses and averages). That means that a few months after an event traditional insurance will, in theory, see your balance sheet in the same state it was before.
The issue with that form of protection is that businesses often can’t afford to wait when wages and bills are piling up. When claims are paid months later the money may end up with liquidators rather than the business it was intended to protect, particularly whilst a business is shuttered due to the latest lockdown and cash flows are already under pressure. And, you may suddenly discover that you traditional policy has exclusions in the small print meaning that you won’t get compensated for, say, property damage outside the main building, or interruption of business. The trade group Business in the Community estimates 40 per cent of businesses fail after catastrophic flood losses. That’s a figure no insurer should be comfortable with, and it’s one that needs to change.
FloodFlash protects business cash flow. We give businesses the injection of cash needed to guarantee survival after a flood. We typically pay claims within 48 hours but often are much faster. This means recovery can begin straight away and clients can concentrate on what’s best for their business rather than waste valuable time arguing the toss on the value of their claim. The client’s business survives.
IB: The benefit to insurers is simple. In removing the loss adjustment element of traditional insurance, we have removed one of, if not the, biggest source of uncertainty when pricing flood risk. If the insurer knows the value of any given claim before it happens, they can be much more secure in their pricing. We’ve also removed the cost of that process. The upshot is that parametric cover can be far more affordable than traditional insurances that build their uncertainty and adjustment costs into client premiums.
Why is FloodFlash gaining in popularity now?
AR: For the first time every single business knows what a catastrophe looks like. Most catastrophic events only happen in certain areas. COVID has provided a stark lesson on the outcomes of being closed due to circumstances out of their control. Businesses have learnt the importance of having cash to keep the businesses going through a catastrophe. Financial products that protect cash flow are growing in popularity as a result.
IB: To add to that, it’s important to look at the state of the global commercial insurance market. Ask any insurer and they’ll tell you that we’re currently in what’s known as a hard market. Capital is harder to come by and insurers are more risk-averse. Flood insurance supply is one of the first things to suffer in these kinds of conditions. That means that alternative solutions with less uncertainty like FloodFlash become more attractive to insurers and become the only option for many clients.
AR: This is all set against a backdrop of other macro trends: climate change, population growth and urbanisation are increasing flood risk. Increasing computer power and lower cost IoT networks means the modelling and monitoring required for parametric insurance are available to the mainstream for the first time.
What does the future have in store for FloodFlash?
AR: Ian and I make it no secret that UK commercial flood risk is only the first step. I want to take FloodFlash international so that we can make a real dent in the protection gap. Long term our ambition is to use the same principles of fast, tech-based insurance to protect people from other risks.
In your opinion, what will be the future of the insurance sector?
IB: I expect parametric insurance to be a key growth driver, especially in the catastrophe space. That’s not just based on our experience though. There are loads of great businesses doing interesting things in this space, plus the VC community is bullish on parametrics so capital will continue to flow.
Beyond that, we want to see a drive for more transparent insurances. The scandal surrounding COVID claims is the latest echo of ongoing bad PR that haunts our industry. Clearer, simpler insurance products with little room for loopholes or misunderstanding will go a long way to help people. Whether that’s achieved through tech, wider use of data or new ways of packaging and distributing products remains to be seen. I suspect it will be a combination of all three.